With the analysts predicting that emerging markets will account for the majority of future economic growth and gross domestic product (GDP) power, having exposure to the faster moving nations is essential. Their expanding wealth profiles and population demographics help cement the investment thesis. Funds like the SPDR S&P Emerging Markets (ARCA:GMM) have become popular portfolio additions, as investors have sought to capitalize on the trends. However, not all roads into the emerging world are as obvious as buying an emerging market fund. There may be another approach to gain access to these faster markets at unbelievable cheap levels. (To know more about emerging market, read: What Is An Emerging Market Economy?)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

The Land of the Emerging Sun
When investor's think about high growth opportunities, Japan never makes the list. Overall, the nation has been viewed, by many investors, as one of the most unfavorable markets for at least 20 years, ever since the 1980s crash and resulting crippling deflation. However, that impression may be changing. Japan is quickly transforming itself from a leading exporter to the developed world, to Asia's emerging go-to supplier.

About 56% of Japanese exports head into China, while another 16% go to other emerging markets in Asia. The key is Japan's dominance across a variety of high tech sectors, outside of consumer electronics. Ironically, the nation's nuclear reactor designs are gaining traction throughout the rest of Asia. A partnership between Japanese reactor designers and the nation's government, has begun expanding marketing of multibillion dollar projects towards energy-hungry countries like Indonesia. Recent fruits of this effort include a $13 billion project to build two reactors in southern Vietnam. Japan is also seeing big export gains across a mixture of infrastructure and pollution remediation equipment. The nation is a leader in clean energy, and advanced transportation systems like bullet trains. As emerging Asia continues to build out its infrastructure, Japan will be a major beneficiary of this construction. In addition, Japan is seeing increased levels of "shopping tourism." Last year, travel restrictions between China and Japan were lifted, and Chinese middle-class residents have been flocking to Japan's shores to gain access to luxury goods and higher quality products.

Finally, Japan's equity markets continue to flaunt their "cheapness." The broad iShares S&P/TOPIX 150 Index (ARCA:ITF) is trading roughly at book value and yields more than 2%. Japanese firms generated more than 6 trillion yen in free cash flow in 2010, and more than 45% of all firms have more cash than debt on their balance sheets. (For additional reading, check out: Should You Invest In Emerging Markets?)

Playing Japan's New Emerged Dominance
For investors, Japan's newly minted status as Asia's emerging go-to supplier could be the catalyst it needs to finally break out of its doldrums. Adding broad plays like the iShares MSCI Japan Index (ARCA:EWJ) or WisdomTree Japan Small-Cap Dividend (ARCA:DFJ) make ideal ways to play the entire Japanese story. However, some of the best plays for the nation could be in individual stocks.

With the World Nuclear Association predicting that the number of nuclear power plants will more than double in the next 15 years, reactor designers Hitachi (NYSE: HIT) and Toshiba Corp. (OTCBB:TOSBF) will be major winners. Even if that doesn't pan out, both firms have a variety of infrastructure, consumer electronics and industrial products that the emerging world is craving. In addition, the firms are still cheap, trading for forward P/E's under 10.

While Caterpillar (NYSE: CAT) often gets the nod from investors as the top construction play, Japan's Kubota (NYSE:KUB) and Komatsu (OTCBB:KMTUY) could be better buys. Both offer heavy machinery for construction, farming and industrial uses. Kubota's price-to-book ratio is around 6, and Komatsu was the first heavy machinery firm to offer hybrid versions of a few of its excavators.

The Bottom Line
Japan's recent expansion as a major exporter to Asia's emerging markets could be its saving grace. For investors, this could be the time to add the nation to a portfolio. The previous firms, along with sogo shosha's like Sumitomo Corporation (OTCBB:SSUMY), make ideal selections. (For additional reading, check out: The Risks Of Investing In Emerging Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  2. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  3. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  4. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  5. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  6. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  7. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  8. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  9. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  10. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center